This story originally appeared on PlanPhilly.
Rachelle Faroul is a 33 year old woman with a good credit rating and a degree from Northwestern University. When she decided to buy a house in West Philadelphia, near Malcolm X Park, Faroul, who was then making $ 60,000 a year teaching at Rutgers University, did not think about having the loan co-signed by her. partner. It didn’t seem necessary – until it was.
“I had a lot of savings and still had so many problems left and right,” said Faroul.
Despite her strong credit rating, the young professional found herself rejected twice by lenders as she tried to buy a house in the gentrifying neighborhood. Faroul is black. One of the lenders who refused it, Philadelphia Mortgage Advisors made 90% of its loans to white applicants in 2015 and 2016. The independent broker told Faroul its earnings were not stable enough.
So she found a new job at the University of Pennsylvania. But a year later, when Faroul tried to get a loan with Santander Bank, new obstacles arose. An unpaid electric bill of $ 284 appeared on her credit report, causing her score to drop. Santander said he couldn’t move forward. The bank turned down 13% of white applicants in 2015 and 2016, compared to 37.1% of black applicants.
Things changed for Faroul when her partner, Hanako Franz, who is half white and half Japanese, agreed to co-sign her loan application. With Franz’s signature on the dotted line, Santander sang a totally different tune. Faroul’s loan officer had “completely stopped answering Rachelle’s phone calls, just ignored them all,” said Franz. “And then I called and he answered almost immediately. And it’s so nice.
At the time, Franz was working part-time in a grocery store and earning about $ 144.65 every two weeks. The couple were approved for the loan in just a few weeks. But the experience still stings Faroul.
“It was humiliating,” she said. “I was made to feel that nothing I contributed was of value, like I didn’t matter.”
While the Philadelphia housing market is booming, white homebuyers and homebuyers of color are not equally in a position to reap the rewards. White Philadelphians received 10 times more conventional mortgages than black Philadelphians in 2015 and 2016, although they represent similar shares of the population, according to a year To analyse millions of recordings of the Home Mortgage Disclosure Act by public radio program “Reveal ”from the Center for Investigative Reporting.
Even controlling applicants’ income, loan amount, neighborhood, and other factors, blacks were 2.7 times more likely than whites to be refused a conventional mortgage in Philadelphia.
“Everyone will tell you that they are playing from the same playbook in terms of what is required to become pre-approved for a mortgage. You must have your pay stubs, your bank statements, your tax returns; you have to have a special credit rating, ”said Arlene Waynes-Thomas, president of the Philadelphia chapter of the National Association of Real Estate Brokers (NAREB), which represents African-American real estate professionals. “But minorities will be interviewed and asked to provide information, documents, which may not be required of other races.”
For example, borrowers must prove that they have the funds for closing costs, which could be done with a simple bank statement. Often times for a borrower of color, “Well now they want a letter from the bank, and they want the letter signed by the bank manager or the bank president, verifying that they know that person has. the funds in his account, ”says Waynes-Thomas. “It could be clear and they still want this information. It is therefore insult to injury.
Waynes-Thomas works primarily with people of color. “But every time we work with white people, they don’t have the same challenges,” she said. “They seem to go through a lot easier.”
Reached by “Reveal”, Faroul’s lenders denied that discrimination played a role, but analysis of the 31 million files publicly available under the Home Mortgage Disclosure Act show a clear trend. While lenders and business groups do not dispute the disparity between white borrowers and borrowers of color, they say it can be attributed to factors unrelated to race: a borrower’s debt-to-income ratio and his credit rating.
But the industry has struggled to keep this information secret, especially the proprietary algorithms used to determine credit scores. This black box makes it difficult for researchers to prove discrimination. Given the long history of economic deprivation of non-white Americans, Waynes-Thomas said reliance on credit scores puts people of color at a particular disadvantage.
“Doesn’t it seem like something unfair that someone can describe who you are by their standards, and there’s nothing you can do about it, but try to fight with them and challenge them, but is their word taken at your word? ” Waynes-Thomas asks.
When offered loans, borrowers of color are often pushed into more expensive loans backed by the FHA, or targeted by predatory lenders, said Soneyet Muhammed, director of community engagement at Clarifi, a non-profit organization. Philadelphia nonprofit that teaches financial literacy. Americans of color are already beginning to search for housing with less wealth. Median net worth is now $ 9,000 for a black family and $ 12,000 for a Latin American family, compared to $ 132,000 for a white family, according to the latest Census Bureau figures. But borrowers of color can also suffer from knowledge and access gaps.
Clarifi has run a financial literacy boot camp for the past five years, typically attracting between 20 and 30 participants for a period of six months. Last year, when Clarifi launched a training camp focused on the racial wealth gap, it drew over 80 participants.
“I think we’ve really hit a sweet spot in terms of underserved African Americans and Latinxes,” Muhammed said. Bootcamp teaches potential borrowers how to find the best mortgage deals, recognize scams, and defend themselves with lenders.
“Americans buy jeans, but we don’t buy as many financial products as we need,” Muhammed said. “This is especially important for communities of color, because for them the mortgage road is strewn with landmines. At first glance, they may qualify for affordable mortgages, but are routinely denied products that their white counterparts might receive. “
Philadelphia isn’t the only city with these disparities, but it’s one of the worst. According to the “Reveal” survey, African Americans were denied conventional mortgages at much higher rates than whites in 61 metropolitan areas of the United States, including Atlanta, Detroit, St. Louis, and San Antonio. Black candidates fared much worse than whites in 48 cities, especially in the South. Latinos were turned away at higher rates in 25 cities, Asians in nine, and Native Americans in three. Reveal found that all four groups were much more likely to be turned down for a loan in Washington, DC, the nation’s capital.
If this sounds a lot like redlining, a federally-backed mid-century practice that made it nearly impossible for borrowers of color to get affordable mortgages, it’s – with a twist: the 1977 Law of community reinvestment, intended to fight against redlining, required that banks invest in disadvantaged and disadvantaged neighborhoods. But because ARC is tied to geography, not income or race, “Reveal” found that in gentrifying neighborhoods, most of these special loans now go to new white homebuyers, and not to long-time residents of color. This, added to gaps in wealth and knowledge, may explain why in some census tracts of Philadelphia, whites make up only 6% of the population, but ask for twice as many loans as blacks.
The disparities also mean that existing homeowners of color may find it difficult to acquire loans to maintain and repair their properties, leaving them vulnerable to foreclosure and fueling a cycle of plague and loss in communities of color. “Homeownership is the foundation on which most people create wealth in this country,” Muhammed said. “If I have equity in my home, I can send my child to higher education. I have the option of withdrawing equity from my home for retirement. The problem is that the path is regularly blocked for communities of color. “
It’s a frustration for her and for Waynes-Thomas, who said the disparities are also impacting real estate brokers who work with home buyers of color. “We have to overcome these hurdles with the buyer,” she said. In many ways, little has changed since the founding of his organization in 1937, when black real estate agents were excluded from the national business organization, or since 1968, when the Fair Housing Act was passed. “We are still fighting the same battles,” Waynes-Thomas said.
This report was produced by PlanPhilly.